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Saturday, 10 October 2015

Canadian Climate Policy Report Card: 2015

Executive Summary

Over the past three decades, governments in developed countries have made many
commitments to reduce a specific quantity or percentage of greenhouse gases by a specific
date, but often they have failed to implement effective climate policies that would achieve
their commitment. Fortunately, energy-economy analysts can determine well in advance of
the target date if a government is keeping its promise. In this 2015 climate policy report
card, I evaluate the Canadian government’s emission commitments and policy actions. I
find that in the nine years since its promise to reduce Canadian emissions 20% by 2020 and
65% by 2050, the Canadian government has implemented virtually no polices that would
materially reduce emissions. The 2020 target is now unachievable without great harm to
the Canadian economy. And this may also be the case for the 2050 target, this latter
requiring an almost complete transformation of the Canadian energy system in the
remaining 35 years after almost a decade of inaction.

Canadian Climate Policy Report Card: 2015BackgroundA critical challenge to preventing the harms from human-produced greenhouse gas emissions,
especially CO2 from burning fossil fuels, is that elected representatives face weak incentives to
implement effective climate policies and strong incentives to implement no or ineffective
policies. There are several reasons.

First, significant CO2 emissions reductions require ‘compulsory policies’ – regulation of
technologies and energy forms and/or pricing of CO2 emissions – and these are seen to cause
immediate costs for some even though the long-term benefits for society exceed these costs.
These immediate costs would begin during the mandate of current politicians, and have
significant political risks, while the benefits of avoiding climate change will mostly occur after
the career of current political leaders.
Second, the benefit from taking action to reduce emissions is uncertain because success against
human-caused climate disruption requires that most other countries also reduce emissions. With
the exception of the largest two emitters, China and the US, efforts by a single country would
have a negligible effect in reducing future harms from rising CO2 concentrations. This argument
provides an excuse for political leaders in a given jurisdiction to delay action until there is a
near-universal global effort, conveniently ignoring the fact that this very requirement renders an
effective global effort extremely unlikely.
Third, it is difficult for non-experts to know if a government’s climate policies are having an
effect until much valuable time has been lost. If a person agrees with his or her doctor to lose 10
kilos over the next six months for health reasons, both know that this promise will not be kept if
the doctor finds after four months that the person has actually gained weight. With national CO2
emission promises, however, there is no authoritative third party, like a personal doctor, to
monitor the government’s progress and assess the likelihood of meeting its commitment.
Without that check, governments may continue to claim they will meet their commitment even
though it is obvious to experts they will not.
In producing this ‘report card’, I address this third problem by providing an evaluation of the
Canadian government’s progress in fulfilling its emission reduction promises since its election in
2006. My assessment is primarily based on simulations using an energy-economy, micro-
economic model called CIMS, with some of its results adjusted to reflect information from an
energy-economy, macro-economic model called GEEM.1Most of the analysis I rely on was
conducted by researchers under my direction in the School of Resource and Environmental
Management at Simon Fraser University. I have produced similar evaluations over the past two
decades, some as a research fellow at the CD Howe Institute, some published in refereed academic journals, some as an advisor to the Canadian government, and some as an advisor to
independent entities such as the National Roundtable on the Environment and the Economy.

Evaluation
Within a year of its 2006 election, the Harper government promised to reduce Canadian GHG
emissions 20% by 2020 and 65-70% by 2050. It claimed, moreover, that it would achieve these
commitments by regulating technologies, fuels and individual industrial sectors rather than by
emissions pricing.2
Canada could have a near-zero-emission energy system with currently available technologies,
but the rate of energy system transformation has a large effect on costs. In electricity generation,
Ontario decreased its GHG emissions over 80% in one decade by closing or converting its coal-
fired power plants – shifting toward nuclear, hydro, wood, wind, small hydro, solar and some
natural gas. This was in part possible because coal had previously provided only 25% of
Ontario’s electricity. Even so, Ontario had initially tried to close its coal plants in just four years,
but this proved too costly so the target was delayed.
The more quickly society tries to reduce emissions, the greater the cost, since this is likely to
require the premature replacement of still-useful plant and equipment. Energy system
transformation that occurs at the natural rate of turnover of plant and equipment is much less
costly. Electricity plants provide one example. Vehicles provide another. Near-zero-emission
vehicle technologies and fuels are commercially available, including biodiesel, ethanol, plug-in
hybrid electric, pure electric and soon hydrogen fuel cell. But vehicles last 14 years on average,
and 2020 is just over four years away. An effort to significantly reduce transportation emissions
would be expensive if an ambitious government regulatory effort only occurred four years before
the deadline. In other sectors of the economy, like major energy-using industries and buildings,
the turnover rate of much of plant and equipment is so slow that even a decade provides little
opportunity for significant, low-cost reductions.
Soon after the Harper government made its 2020 promise, I and a research associate estimated
the cost and effectiveness of the policies it proposed to achieve its target.3The suggested policies
were a mix of information programs, subsidies and proposed intensity-based emissions caps.
Using the CIMS model, we estimated that these policies would not significantly reduce
emissions. As it turned out, the government abandoned most of the policies anyway, but
promised to soon replace them with sector-by-sector emissions regulations to meet its promise.
However, it has still not done so, and as of 2015 virtually all GHG emissions in Canada have no regulatory constraints or emissions charges imposed by the federal government. Nine years have
passed since regulations were first promised.

Two initiatives of the federal government have sometimes been suggested as affecting GHG
emissions in the 2020 timeframe, but this is not supported by evidence. In 2012, the government
established regulations for new coal-fired power plants. Since no new coal plants are planned in
the 2020 timeframe, these regulations make no contribution to achieving the government’s 2020
commitment, nor even in the 2020-2030 period. In contrast to the Canadian approach, the US
government is in the process of finalizing significant emissions controls that will immediately
constrain the current operations and force the early closure of existing coal-fired power plants.
The second initiative has been to harmonize Canadian vehicle efficiency regulations with
regulations imposed by the US government. These would reduce fuel use somewhat after 2016
and, more significantly, after 2020. While improved efficiency potentially reduces fuel
consumption and CO2 emissions (only if greater vehicle use does not offset the efficiency
reduction), it does not have the CO2 effect of policies targeted directly at changing fuels and
propulsion systems, such as California’s ‘low carbon fuel standard’ and ‘vehicle emissions
standard’. Canada has not adopted these regulations, yet they are the only way in which its
preferred regulatory approach could have achieved its promised reductions in a sector like
transportation.
As noted, I conduct this evaluation to compensate for the lack of an external check on the GHG
reduction promises of politicians. However, while the Commissioner on Environment and
Sustainability under the Auditor General of Canada lacks the modeling capacity to fully evaluate
the likelihood that the government is acting to meet its commitments, in 2012 it nonetheless
produced an evaluation based on modeling by Environment Canada. It noted that because the
government had done little, including still not implementing emissions regulations in the all-
important oil and gas sector, “it is unlikely that enough time is left to develop and establish
greenhouse gas regulations ... to meet the 2020 target.”4That statement was made in 2012, with
eight years remaining to the 2020 target. Today, in 2015, still no additional climate regulations
have been passed at the federal level.
Even with no federal policies, it is conceivable that Canada’s emissions will fall somewhat for
other reasons. The global recession of 2008-2009 caused a temporary reduction in Canadian
emissions. Provincial climate policies may also play a role. Ontario’s closure of its coal plants
was by far the single greatest cause of emission reductions in Canada in the past decade. And the
BC government issued a near-zero-emission electricity requirement in 2007 which led to the
cancellation of two proposed coal-fired power plants and a large natural gas-fired plant. National
emissions would have climbed more rapidly were it not for these provincial policies.

In 2014, a research associate under my direction used the CIMS model to estimate the relative
effects of the federal government’s policies (such as the coal plant regulations) and other
developments (such as provincial climate policies) on Canadian emissions in the 2020 and 2050
timeframes to assess the likelihood that the federal government would keep its emission
reduction promises.5Even with the economic recession and the proposed climate policies of
provincial governments, the study found that emissions in 2020 would be over 20% higher than
the Canadian government’s promise (744 Mt CO2 instead of 612 Mt.). This is almost identical to
an estimate made by Environment Canada with a similar model a year earlier.6A key factor in
both studies is the assumption that oil sands production would rise from 1.9 million barrels per
day in 2012 to 3.4 in 2020. Even though oil sands expansion is one of the major reasons why the
Canadian government would break its emissions promise, its promotion of this expansion is
nonetheless one of its highest priorities.
Finally, because the federal government has done virtually nothing to reduce emissions, my
research associate calculated that the government, at this late date, would need to apply a carbon
tax of $50 in 2015 that rises in annual increments to over $150 by 2020 in order to keep its
climate promise.7Moreover, even the 2050 target is in jeopardy, unless government very soon
implements a significant and rising price on carbon emissions or regulations of equivalent effect.
Report Card
In 2006 the Canadian government committed to reduce national GHG emissions 20% by 2020
and 65-70% by 2050. The government claimed, moreover, that it would use regulations (rather
than emissions pricing) to force the shift toward low emission fuels and technologies throughout
the Canadian economy.
Since 2006, the government has implemented no regulations that would materially reduce
Canadian GHG emissions from what they otherwise would be in 2020. The two regulations it has
implemented (coal plant emissions and vehicle efficiency) may slightly slow the growth of
emissions after 2020, but they would contribute only marginally to the energy system
transformation that must occur by 2050 for the government to keep its promise. Because of nine
years of inaction, it may already be extremely costly to achieve the 2050 target.
In climate policy, the Canadian government has done virtually nothing to keep its 2020 and 2050
emission reduction promises. A failing grade is the obvious result.
_______________1 Brief descriptions of these two models are provided in Peters, J., Bataille, C., Rivers, N. and M. Jaccard, Taxing Emissions, Not Income, 2010, CD Howe Institute.2 Government of Canada, 2007, Regulatory Framework for Air Emissions. Government of Canada, 2008, Turning the Corner. While the government later changed its 2020 target slightly, from 20% to 17% reduction, this has no significance for the analysis and evaluation reported here. To discourage mid-stream target changes, I focus here on the initial promise of the federal government in 2006.3 Jaccard, M. and N. Rivers, 2007, Estimating the Effect of the Canadian Government’s 2006-2007 Greenhouse Gas Policies, CD Howe Institute.4 Auditor General of Canada, Commissioner on Environment and Sustainability, 2012, Meeting Canada’s 2020 Climate Change Commitments.5 Kniewasser, M., 2014, Achieving Canada’s Climate Targets and the Impacts on Alberta’s Oil Sands Industry,
Master’s Project, School of Resource and Environmental Management, Simon Fraser University.6 Environment Canada, 2013, Canada’s Emissions Trends 2013.7 Kniewasser, M., 2014, Achieving Canada’s Climate Targets and the Impacts on Alberta’s Oil Sands Industry,
Master’s Project, School of Resource and Environmental Management, Simon Fraser University